Bacardi and Coke off the agenda for now: Coca-Cola Amatil

The Board of Coca-Cola Amatil has decided to fend off the takeover offer made by Lion Nathan, believing it not to be in the best interests of their shareholders.

Yesterday they noted “material deficiencies” in the offer made by Lion Nathan, which valued Australia’s largest soft drink bottler at around 10.8 x FY2008 earnings (or about $7.6b). The Board’s main concern is that the price to earnings multiple value of 10.8 is below the other major beverage deals made in Oceania this year. Danone’s Frucor and Australian dairy co-op Dairy Farmers were both purchased at multiples of around 13. In fact, Dairy Farmers was purchased by Kirin Holdings subsidiary National Foods and, given that Kirin is the major shareholder of Lion Nathan (they acquired 46% in 1998), CCA’s Board believe they are entitled to more.

There is one major difference between the two major beverage deals in Australia and NZ this year and a purchase of Coca-Cola Amatil, notably that CCA doesn’t own many of their key brands. Widely recognised in global research as the brand with the greatest value, Coca-Cola is in fact owned by The Coca-Cola Company – which has a 30% stake in CCA and supplies concentrate to their Australian bottler. Beyond that of Coca-Cola, many of their other core brands are also owned by The Coca-Cola Company, including Powerade, Sprite and Fanta. They do, however, own the Mt Franklin water, Kirks and the SPC Ardmona trademarks, among others, and have a very strong distribution network being Australia’s largest bottler.

The price represented a 31% premium to the share price of CCA as of Friday November 14, though this premium, CCA believes, “may overstate the actual premium offered to CCA shareholders”.

A condition of the proposal was the support of The Coca-Cola Company, which has also not been forthcoming. The CCA Board reported that The Coca-Cola Company had responded to Kirin and Lion Nathan informing them that the deal was “not attractive”, with a number of conditions needing to be satisfied before they would offer their support.

“As a consequence of the above (the lack of support from The Coca-Cola Company), a number of material deficiencies in the Proposal, and the highly conditional nature of the Proposal, the Board of CCA has decided not to progress any further review of the Proposal and has advised Lion accordingly,” they concluded in a statement.

A combination of Lion Nathan and Coca-Cola Amatil would produce Australia’s largest beverage company. A combined business would have interests in the beer, spirits, soft drink, wine and food industries and, according to Lion Nathan, would be able to produce cost synergies of approximately $100-$130m per annum.